The Well Informed Investor: Part 1 : Your Beginner’s Guide to Making Money in Real Estate

Posted on 30. Oct, 2011 by in General

Welcome to the first in a series of blogs designed to help the beginner investor figure out and understand the foundation of real estate investing.

If you find yourself attending seminar after seminar, spending every spare minute reading a ton of books in the hope of developing the secret to real estate investing, perhaps you need to look closer to home.  Success in real estate investing isn’t about having hidden knowledge, it is very much dependent on  a sound understanding of what drives real estate – and that is (not guesswork) (not hot tips) and (not bargain properties) – just plain old solid economics.

There are seven basic fundamentals that takes the guesswork out of investing. Here are the first three steps – stay tuned  for the next four later this week.

1.  Know the Market

Whatever you do, don’t guess the market!! Ignore those hot tips from family and friends and avoid predictions from people who are purchasing real estate purely on speculation.  Investing without knowing what economically is supporting the value of real estate is speculation – not investing. Your job is to understand the local economy inside out. Any investment decision should be based on two factors – the economic fundamentals and the property’s ability to cash flow (that is the amount of income less expenses). Investigate and research your target region to understand the demographics in detail.

2. Is The Average Income Increasing?

In order to further understand the economics of an area, look at the wealth of its residents. Identify the average income for the city or town you are looking to invest in and compare this to the provincial average. All of this information can usually be obtained from Stats Canada or local government sites.  If your target areas income is increasing faster than the rest of the province, this is generally a good indication that real estate values will move upward. Without an increase in incomes, any increase in real estate values will not be sustainable.

3. Population Growth

The next factor to look at is population growth. Identify your target region population growth and again, compare the figure to the provincial average. If there is in-migration of people to an area, you can almost predict the real estate market over the next few years. Statistics show that once people move into a region for the first time, they will rent for the first 2 to 3 years, after that, 50% will buy while 40% will continue to rent and 10% will leave. Learn everything you can about the businesses and industry for your target area and familiarize yourself with the local government’s plans for attracting jobs into the area.

Steps 4-7 coming at the end of the week.

Have a great week,

Jane & Richard

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